Correlation Between IShares SP and SSgA SPDR

Can any of the company-specific risk be diversified away by investing in both IShares SP and SSgA SPDR at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares SP and SSgA SPDR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares SP 500 and SSgA SPDR ETFs, you can compare the effects of market volatilities on IShares SP and SSgA SPDR and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares SP with a short position of SSgA SPDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and SSgA SPDR.

Diversification Opportunities for IShares SP and SSgA SPDR

0.96

Correlation Coefficient

IShares SP  SSgA SPDR

Almost no diversification

The 3 months correlation between IShares and SSgA is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs and IShares SP is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares SP 500 are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of IShares SP i.e., IShares SP and SSgA SPDR go up and down completely randomly.

Pair Corralation between IShares SP and SSgA SPDR

Assuming the 90 days trading horizon IShares SP is expected to generate 1.16 times less return on investment than SSgA SPDR. But when comparing it to its historical volatility, iShares SP 500 is 1.3 times less risky than SSgA SPDR. It trades about 0.23 of its potential returns per unit of risk. SSgA SPDR ETFs is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  10,537  in SSgA SPDR ETFs on September 26, 2024 and sell it today you would earn a total of  1,512  from holding SSgA SPDR ETFs or generate 14.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

iShares SP 500  vs.  SSgA SPDR ETFs

iShares SP 500

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SSgA SPDR ETFs

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SSgA SPDR unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares SP and SSgA SPDR

The main advantage of trading using opposite IShares SP and SSgA SPDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP position performs unexpectedly, SSgA SPDR can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SSgA SPDR will offset losses from the drop in SSgA SPDR's long position.

The idea behind iShares SP 500 and SSgA SPDR ETFs pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.